Auditor's Report on Euskaltel, S.A

Auditor’s Report on Euskaltel, S.A. (Together with the annual accounts and directors’ report of Euskaltel, S.A. for the year ended 31 December 2020) (Translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails.) I KPMG Auditores, S.L. Torre Iberdrola Plaza Euskadi, 5 Planta 17 48009 Bilbao Independent Auditor's Report on the Annual Accounts (Translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails.) To the Shareholders of Euskaltel, S.A.: REPORT ON THE ANNUAL ACCOUNTS Opinion ___________________________________________________________________ We have audited the annual accounts of Euskaltel, S.A. (the “Company”), which comprise the balance sheet at 31 December 2020, and the income statement, statement of changes in equity and statement of cash flows for the year then ended, and notes. In our opinion, the accompanying annual accounts give a true and fair view, in all material respects, of the equity and financial position of the Company at 31 December 2020, and of its financial performance and its cash flows for the year then ended in accordance with the applicable financial reporting framework (specified in note 2 to the accompanying annual accounts) and, in particular, with the accounting principles and criteria set forth therein. Basis for Opinion__________________________________________________________ We conducted our audit in accordance with prevailing legislation regulating the audit of accounts in Spain. Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Annual Accounts section of our report. We are independent of the Company in accordance with the ethical requirements, including those regarding independence, that are relevant to our audit of the annual accounts pursuant to the legislation regulating the audit of accounts in Spain. We have not provided any non-audit services, nor have any situations or circumstances arisen which, under the aforementioned regulations, have affected the required independence such that this has been compromised. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. KPMG Auditores, S.L., a limited liability Spanish company and a member firm of the On the Spanish Official Register of Auditors (“ROAC”) with No. S0702, and the KPMG network of independent member firms affiliated with KPMG International Spanish Institute of Registered Auditors’ list of companies with No. 10. Cooperative (“KPMG International”), a Swiss entity. Reg. Mer Madrid, T. 11.961, F. 90, Sec. 8, H. M -188.007, Inscrip. 9 Paseo de la Castellana, 259C 28046 Madrid N.I.F. B-78510153 2 (Translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails.) Key Audit Matters_________________________________________________________ Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the annual accounts of the current period. These matters were addressed in the context of our audit of the annual accounts as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Estimation of supplier volume discount – Supplies See note 13.2 to the annual accounts Key audit matter How the matter was addressed in our audit The Company’s cost of supplies is reduced by certain Our audit procedures included the following: volume discounts, the application of which is subject to the degree of fulfilment of a certain accumulated volume a) evaluating the design and implementation of key of consumption within an agreed period, which is usually controls related to the supplies and discounts process; more than one year. b) reading and understanding the volume discount Under these circumstances, the appropriate recognition contracts with suppliers; of the cost of supplies requires the Company to make reliable estimates as to the degree to which the c) assessing the consistency of the volume discounts conditions giving entitlement to the discount will be met. recorded on the basis of the agreed-upon terms and These estimates require a high level of judgement by the conditions in the contract; and Directors. d) assessing whether the forecast accumulated Due to the uncertainty associated with these estimates consumptions for the years for which a minimum and the relevant effect that these discounts have on the volume has been established in the contract in order recognition of the cost of supplies for the year, this has to avail of the discount are reasonable and consistent been considered a key audit matter. with the business plan approved by the Directors. In this regard, we reviewed the historical level of achievement of the forecasts, comparing actual volumes of consumption with the initial forecasts. 3 (Translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails.) Recoverable amount of non-current investments in Group companies and associates See notes 4.5 and 8 to the annual accounts Key audit matter How the matter was addressed in our audit The recoverable amount of non-current investments in Our audit procedures included the following: Group companies and associates is calculated, in the case - assessing the design and implementation of key of companies showing indications of impairment, by controls related to the process of estimating the applying valuation techniques which often require the recoverable amount of investments in Group exercising of judgement by the Directors and the use of companies and associates; assumptions and estimates. Due to the uncertainty associated with these estimates, this has been considered - assessing the methodology and assumptions used to a key audit matter. estimate the recoverable amount using the value in use method based on discounted cash flows, with the involvement of our valuation specialists to evaluate the adequacy of the discount rates used and the long-term growth rates; - comparing the cash flow forecasts estimated in prior years with the actual cash flows obtained; - assessing the sensitivity of certain assumptions to changes that are considered reasonable; and - contrasting the information contained in the model used to calculate the recoverable amount with the business plan approved by the Directors. We also assessed whether the disclosures in the annual accounts meet the requirements of the financial reporting framework applicable to the Company. 4 (Translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails.) Revenue recognition See notes 4.10 and 13.1 to the annual accounts Key audit matter How the matter was addressed in our audit Revenue recognition is considered a key audit matter Our main audit procedures included evaluating the design given its significance in relation to the annual accounts as and implementation, with the help of our information a whole, and because the recognition of revenue from systems specialists, of the Company's controls over the services rendered is a highly automated process involving recognition of revenue from services rendered. a large number of individual transactions. We also assessed the design and implementation and tested the effectiveness of the general controls over program access and modification and automated component controls over invoicing systems and other support systems classified as critical for the purposes of our audit. We also performed tests of detail, including the following: a) Reconciliation of data from the invoicing and collection systems with the accounting records. b) Review of corrective invoices and subsequent payments. Other Information: Directors’ Report________________________________________ Other information solely comprises the 2020 Directors' Report, the preparation of which is the responsibility of the Company's Directors and which does not form an integral part of the annual accounts. Our audit opinion on the annual accounts does not encompass the directors' report. Our responsibility regarding the information contained in the directors’ report is defined in the legislation regulating the audit of accounts, as follows: a) Determine, solely, whether the non-financial information statement and certain information included in the Annual Corporate Governance Report, as specified in the Spanish Audit Law, have been provided in the manner stipulated in the applicable legislation, and if not, to report on this matter. b) Assess and report on the consistency of the rest of the information included in the directors’ report with the annual accounts, based on knowledge of the entity obtained during the audit of the aforementioned annual accounts. Also, assess and report on whether the content and presentation of this part of the directors’ report are in accordance with applicable legislation. If, based on the work we have performed, we conclude that there are material misstatements, we are required to report them. Based on the work carried out, as described above, we have observed that the information mentioned in section a) above has been provided in the manner stipulated in the applicable legislation, that the rest of the 5 (Translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails.) information contained in the directors’ report is consistent with that disclosed in the annual accounts for 2020, and that

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